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PORT COMPETITION WITHIN THE MARITIME LOGISTICS CHAIN
Prof. dr. Hilde Meersman
Prof. dr. Eddy Van de Voorde
1
CONTENT
• Ports are complex and heterogeneous economic entities
• Ports are nodes in the supply chain
• Port competition plays at different levels but is dominated by the competition between entire supply chains
2
WHY STUDY PORT COMPETITION?
• Port competition is an important topic in transport economics:
- Large volumes of goods
- Direct and indirect employment
- Considerable amounts of investments
- Public or private?
- Regulation/deregulation?
- Strategic position
3
• We want to understand the impacts of some important evolutions - increasing vessel sizes
- specialisation of vessels and use of unit loads
- vertical integration within intermodal chains
- hub & spoke; transshipment activities
- economic and managerial integration of logistics chain, driven by capital flows
- in- & outsourcing of logistic activities
- growing public concern about the sustainability of port activities
WHY STUDY PORT COMPETITION?
4
• Research should be able to analyse and predict the consequences for
- the capital/labour ratio and future employment in the ports and maritime sector
- port planning, port capacity and port expansion
- the optimal land-use
- the public support e.g. NIMBY syndrome
- pricing strategies for optimizing capacity utilization
5
Potential port throughput Port capacity
EFFECTIVE PORT THROUGHPUT
Economic activity International trade
Maritime trade
Socio-economic evolutions, economic policy and structural changes in the world economy
Competitive position of the port
THE FOCUS
6
THE FOCUS
Large seaports
characterised by three important elements:
• The maritime aspect i.e. location on the shore and/or the capacity to handle ocean-going vessels
• The goods-handling function
• The distribution function, including hinterland connections.
7
2002 2009 Port Cargo turnover Port Cargo turnover
(million metric tonnes) (million metric tonnes)
Singapore 335 Shanghai 506 Rotterdam 321 Singapore 472 Shanghai 239 Rotterdam 387 South Louisiana 196 Tianjin 381 Hong Kong 193 Ningbo 372 Houston 161 Guangzhou 364 Chiba 159 Qingdao 274 Nagoya 158 Qinhuangdao 244 Gwangyang 153 Hong Kong 243 Ningbo 150 Busan 226
Source: AAPA, 2010
8
CONTENT
• Ports are complex and heterogeneous economic entities
• Ports are nodes in the supply chain
• Port competition plays at different levels but is dominated by the competition between entire supply chains
9
VALUE ADDED
SERVICES CORE SERVICES
Marine services
Terminal services
Ship repair services
Real-estate
management
Information
management
General logistics
services
Value-added facilities
SEAPORT
SERVICES
Logistics chain
integration services
PRINCIPAL ROLES OF SEAPORTS according to the World Bank
10
THE HETEROGENEOUS PORT: A MULTI-ACTOR PLAYING FIELD
Non-port actors in port
perimeter
Port actors in port perimeter
Non-port actors outside port
perimeter
Port actors outside port
perimeter
11
THE HETEROGENEOUS PORT
The port actors may be roughly divided into three groups:
1. The port users: shipping companies, shippers, industrial enterprises,…
2. The service providers: terminal operating companies, pilots, towage services, agents, forwarders, ship repairers, suppliers of foodstuffs and spare parts, waste reception facilities, and bunkerers
3. Port authorities Quantification of relationships: Coppens et al (2007)
12
THE PORT ACTORS
13
RESEARCH
• Spill-overs - identification of the spill-overs: financial, employment, value
added, environmental
• Direct and indirect impacts of strategies and policies - Input-output analyses can study direct and indirect impacts
- Input-output analysis combined with micro- and company-data can reveal strategically important port actors
- Input-output analysis with specific attention to environmental impacts
• System Dynamics to simulate the complexity of the port sector
14
Interactions between port actors
• Decomposed forward linkages
• The linkage of industry i to customer j, relative to the output of that customer
15
DECOMPOSED FORWARD LINKAGES
AGENTS
FORWARDERS
SUPPORTING
ACTIVITIES
SHIPPING
COMPANIESTERMINAL
OPERATING
COMPANIES
HINTERLAND
TRANSPORT
COMPANIES
CUSTOMS
BROKERS
FUEL TRADE
DREDGING
SHIPBUILDING/
-REPAIR
OTHER TRADE
8.07%
8.85%
19.35%
12.82%
15.09%
11.92%
23.25%
10.73%
8.25%
8.09%
16
Interactions between port actors
• Decomposed backward linkages
• The linkage of industry j to its supplier i, relative to the output of that supplier
17
DECOMPOSED BACKWARD LINKAGES
AGENTS
FORWARDERS
SUPPORTING
ACTIVITIES
SHIPPING
COMPANIESTERMINAL
OPERATING
COMPANIES
HINTERLAND
TRANSPORT
COMPANIESCUSTOMS
BROKERS
FUEL TRADE DREDGING
SHIPBUILDING/
-REPAIR
OTHER TRADE
22.57%17.50%
16.54%
41.58%
24.76%
23.74%
10.68%
42.05%
11.72%
12.75%
19.23%
12.79%
12.06%
15.57%
16.46%
11.08%
18
CONTENT
• Ports are complex and heterogeneous economic entities
• Ports are nodes in the supply chain
• Port competition plays at different levels but is dominated by the competition between entire supply chains
Owner of the goods /
shipper Origin
Destination
Distribution
Centre
Port
Port
Receiver of the
goods
Shipping company
Terminal operating
company
Terminal operating
company
Hinterland transport
company
Hinterland transport
company
Forwarder
Agent
Customs broker
Customs broker
Distribution
Centre
20
CONTENT
• Ports are complex and heterogeneous economic entities
• Ports are nodes in the supply chain
• Port competition plays at different levels but is dominated by the competition between entire supply chains
Local/
national
authority
port Y
Traffic
category 1
Traffic
category 2 Port operator F
Port operator A
Port operator C
Port operator B
Port operator A
Local/
national
authority
port X
Port operator E
Port operator A
Port operator D
Port operator B
Port operator A
Port operator C
Port operator B
Port operator A
Traffic
category 3
Traffic
category 1
Traffic
category 2
Port
Y
Port
X
Port
range
Local/
national
authority
port Y
Local/
national
authority
port X
intra-port competition at operator level inter-port competition at operator level inter-port competition at port authority level
TRADITIONAL 3-LEVEL VIEW ON PORT COMPETITION
22
GROWING COMPETITIVE PRESSURE
At various levels:
1. Intra-port competition at operator level (e.g. between TOC’s)
2. Inter-port competition at operator level, e.g. between TOC’s within same range)
3. Inter-port competition at port authority level
23
ULTIMATE DECISION PROCESS OF PORT USER
• Does the port under consideration offer advantages compared to other ports serving the same hinterland?
• Does the port offer sufficient advantages in order to be considered as an addional port of call for an existing or yet-to-be-established liner or feeder service?
24
SUCCES FACTORS IN THE 3-LEVEL APPROACH
• Trade flows and industrial activity
• Geographical location
• Pricing strategy of port authorities and terminal operators
• Support of regional and/or national governments
- Financing port infrastructure and maritime access
- Subsidies
Port operator C
Port operator B
Port operator A
Port
X
SUPPLY CHAIN VIEW ON PORT COMPETITION
ORIG
IN
DESTIN
ATIO
N
Port operator D
Port operator B
Port operator A
Port
Y
Port operator E
Port operator D
Port operator A
Port
Z
Hin
terla
ndpro
vid
er D
H
inte
rlandpro
vid
er E
H
inte
rlandpro
vid
er
C
Hin
terlandpro
vid
er
B
Hin
terlandpro
vid
er
A
Shipping line 1
Shipping line 2
Shipping line 3
26
CRUCIAL QUESTIONS
• Where does the power of decision lie in relation to, for example, the choice of route and/or port, shipping company, terminal operator or hinterland mode?
• Which factors influence these decisions?
• How do such decisions affect decision-making by other players?
• Which decisions by which players determine the competitive position of the port in question?
• Is there a sequence to be discerned in decision-making or are certain decisions made quasi-simultaneously?
27
Owner/ Shipper
Forwarder Shipping company
Terminal operators
Cost xx x xx xx
Location xx x xx xx
Port operations quality/reputation
xx xx xx xx
Speed / time x x x xx
Infrastructure and facilities
x xx xx
Efficiency x xx x xx
Freq. of sailings x x x
Port info system x x x xx
Hinterland x x x xx
Congestion x x x xx
DECISION VARIABLES IN CHOOSING A PORT
28
MODELLING PORT COMPETITION: A GENERAL FRAMEWORK
• The main issue: which supply chain will be chosen? Which factors influence this choice?
• Summarised by the generalised cost of the chain
29
DECISIONS BASED ON GENERALISED COSTS
Subdivision into • time costs (e.g. wages, insurance premiums,
handling costs, storage…) and • distance costs (fuel consumption,….) TC = h.H + d.D + Z
Where TC = total costs h = time coefficient d = distance coefficient H = time factor (in hours) D = distance factor (in miles or kilometres) Z = other costs
30
QUANTIFICATION OF THE SUPPLY CHAIN
The supply chain is made up of various subsections, players and processes
decision-making unfolds at different levels and involves different parties
conflict of interests ?
the price charged by one party will be a cost to another party in the chain and will inevitably have an impact on its operating result
31
QUANTIFICATION OF THE SUPPLY CHAIN (ctd.)
• Modelling and quantification are required at different levels
• One should get a handle on all relevant tradeoffs between the players involved, at all possible levels of the supply chain.
• It also offers the opportunity to analyse how potential actions affect cost.
32
ACTORS, OBJECTIVES AND INSTRUMENTS
Players within a supply chain and their respective objectives and instruments Player Objective Instrument
Shipper and/or owner of goods
Minimisation of generalised cost, including time cost
Power of negotiation, dependent on size, strategic importance of product…
Forwarder Ibid., plus profit margin
Ibid.
Shipping company
Maximisation of profit
Rates. Cost control (capacity, volume, timing, cooperation…) Marketing Service
33
Player Objective Instrument
TOC Profit maximisation, Other objectives may include the establishment of a long-term relationship with the customer.
Pricing Technological choices The provision of value added services
Hinterland operator
Profit maximisation, i.e. maximum differential between total revenue and cost. Other objectives may include increasing market share.
Rates Capacity Flexibility Speed
34
Player Objective Instrument
Port authority or operator
In the case of a private or liberalised entity: profit maximisation Alternative objective: cost minimisation for the supply chain (out-of-pocket and time-related costs), or the maximisation of cargo volume handled.
Pricing Maritime access Concessions policy Socio-economic deliberation
35
NEW ISSUES IN PORT COMPETITION
Multiple actors with
- different objective functions, and
- different time horizons
complicated by interwoveness of the decisions:
- not only causality, but also
- simultaneity
36
NEW ISSUES IN PORT COMPETITION
The new playing field:
Drastic scale expansion by shipowners and terminal operating companies,
coupled with horizontal and vertical integration
37
UNCERTAINTY
• Each market player will try to anticipate on likely strategic moves by other players
• Each of these developments will have an impact on crucial decision variables, such as cost, price, and supply and demand
• As the various players are not affected in the same way, their strategies will vary accordingly
38
RECENT REACTION PATTERNS (1)
• Shipowners - reducing capacity by ending loops (e.g. CSAV),
merging loops (e.g. Cosco) - effect on alliances - aggressive capacity (e.g. MSC using ULCS) or
pricing policy (zero-tariffs) - diversification (e.g. CMA CGM in cruising and
cars)
• Terminal operators - fixed capacity, i.e. less degrees of freedom - pricing policy
39
RECENT REACTION PATTERNS (2): The Hutchison case
• Hutchison buys from NYK majority stake in Ceres Container terminals Europe (CTE)
- Containerterminal Ceres Paragon
- ro/ro and bulkterminal Ceres Amsterdam Marine Terminals
• NYK: minority stake in ECT (Rotterdam) and subsidiary of Hutchison
40
TO CONCLUDE
• Ports are clearly highly heterogeneous and complex environments
• Successful ports belong to successful supply chains
• Each port actor has his own agenda, strategic objectives and tools
• Much will depend on the behaviour of the largest and most influencing customers of ports, i.e. shipping companies
41
TO CONCLUDE (ctd.)
Port competition scenarios are more or less fixed
The timeframe remains uncertain
Timing and optimal speed of action will determine who ultimately comes out on top